Shortly before his assassination in 1987, the president of Burkina Faso, Thomas Sankara, issued a warning. Rich countries, he said, were shrewdly doling out debt to control the developing world. Sankara called for a united front against Africa’s creditors – the only way to fight back against the “technical killers” of private creditors and multilateral lenders who had doled out money to unscrupulous leaders and then demanded huge cuts and sacrifices to secure repayment. all in the guise of helping the poorest countries. “Debt is a skillfully managed reconquest of Africa, intended to subdue its growth and development through foreign rule,” Sankara told the assembled Organization of African Unity delegates.
Earlier this month, also under the guise of helping poorer countries, the International Monetary Fund (IMF) completed a review of its agreement with Burkina Faso. “The authorities are making progress in their fiscal consolidation efforts,” the IMF announced, endorsing “the creation of fiscal space for priority spending.” In other words: the financial colonization of the world is back on track.
Sankara is long dead, but the system against which he railed nearly forty years ago has only become more dominant. In a UN Trade and Development (UNCTAD) report earlier this year, the organization put the total debt burden of the developing world at $29 trillion, an amount unlikely to decrease soon as nations face the costs of high borrowing and as climate risks loom. .
Part of the problem is high interest rates, which raise borrowing costs for countries selling debt now. In a quixotic attempt to tame inflation, central banks of developed countries from the Federal Reserve to the Bank of England have chosen to keep these benchmark lending rates elevated and – at least for now – stuck there, forcing countries that want to attract investors offer similarly elevated returns.
And these borrowing costs show up in the data. A combination of rising rates and debt burdens has pushed annual interest payments to $847 billion, according to UNCTAD — a direct transfer of wealth from government coffers to (mostly) private investors. That’s double what it was a decade ago. UN data shows that fifteen countries spend more on interest payments than on education. Meanwhile, forty-six spend more on interest than on health.
Fortunately, when countries fall into debt distress, there is a precarious situation. Unfortunately, it is the IMF.
While the IMF often downplays its history of demanding deep spending cuts that sacrifice the poor for the good of the market (indeed, the IMF’s own internal research shows that such “structural adjustment” policy is counterproductive), the practice never ended. In an Oxfam analysis released last year, the advocacy and research group found that for every dollar the IMF encouraged governments to spend on public services, it told them to cut six times more through austerity. Late last year, Oxfam also calculated the total cost: over half of the world’s poorest countries would have to cut spending by a total of $229 billion over five years.
For developing countries, the result of all this is that as their debt burden increases, they are forced to take austerity measures to pay back investors. When the debt burden becomes too high, they are forced to take out a loan from the IMF, which in turn forces them into more austerity measures to pay back investors. When a dramatic economic crash ensues, IMF loans can be reversed and conditions can become more stringent as the IMF becomes a de facto insurance and enforcement policy for private investors.
The IMF did not respond to a request for comment for this story.
Another part that makes the issue so difficult are those private investors. While previous global debt relief efforts could pay off bilateral debts (ie, country-to-country loans) and get rid of a good chunk of debt for poorer countries, the 2024 debt crisis is not as simple. Now, most of the debts of developing countries are held by private creditors, who are generally unwilling to sacrifice a hundred more than is absolutely necessary.
The UN estimates that 61 percent of the outstanding debt in developing countries is in private hands. Latin America fares worst on this measure – fully 73 percent of the region’s debt is held by private investors. This makes negotiating a meaningful and large-scale end to the debt problem challenging, impossible.
None of this has escaped attention in Latin America itself. Just last week, marchers overturned cars and threw Molotov cocktails in violent clashes on the streets of Buenos Aires to protest President Javier Milei’s brutal austerity measures (Milei, whose dogs he cloned after libertarian economists often appeared at a campaign rally waving and promising to cut spending). Argentine demonstrators have joined a wave of anti-austerity movements around the world, from Kenya to Pakistan, as the reality of the burden of unpayable debt bites harder.
Unsurprisingly, the road ahead is littered with half-way masses. UNCTAD, for example, recommends everything from “making the system more inclusive” (symbolic and largely meaningless) to “creating an effective debt recovery mechanism.” Any number of such mechanisms in almost any combination would help: reforming the IMF and eliminating the unsustainable system of surcharges, changes in the approaches of credit rating companies that raise the cost of debt, and simplifying negotiations for countries in severe debt difficulties would benefit all the poorest. nations. But it’s still not enough.
Solutions that would meaningfully change things – a massive campaign for debt forgiveness, reparations for centuries of colonization and a fundamental rewriting of the world’s financial architecture and trade rules – seem a long way off. However, some activists maintain a small degree of hope.
Jason Braganza, the executive director of the African Debt and Development Forum and Network, says he senses a debt reckoning ahead that will require some sort of forgiveness campaign.
“I think we are not far from a moment of paying off the debt, but case by case”, he said in an interview for. Jacobin, adding that the demands of climate change will only worsen the situation. “If we don’t fix the structural, systemic challenges, then we’re going to start seeing countries saying, well, we can’t fund each other, we can’t fund a transition. We need cancellation.”
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